Pensions auto-enrolment begins

Contributed by ACCA

The Pensions Regulator has made available a suite of articles that takes businesses through the pension enrolment process and the seven key steps businesses should consider as follows:

1. Know your staging date – when employers will need to act
2. Assessing your workforce
3. Reviewing existing pension arrangements
4. Communicating the changes to all workers
5. Automatically enrolling ‘eligible jobholders’
6. Registering with The Pensions Regulator and keeping records
7. Contributing to your workers’ pensions.

In the article on the first step – Know your staging date – it states that ‘employers should not underestimate the time needed to prepare for automatic enrolment’.

All employers can expect to make some changes to their existing processes in order to comply, and many employers will need to make changes in areas including payroll, human resources and IT. These changes will need to be planned, implemented and tested before the employer’s staging date.

Although all employers will have their own specific staging date, they can choose to bring it forward to an earlier date if they wish. Moving the staging date may be appropriate to bring the new duties in line with other business processes that occur during the year. The Pensions Regulator must be informed before an employer changes their staging date – this must be at least one month before the newly selected staging date, and can be done online.

Staging dates are not far off for a number of businesses. For example there is less than a year remaining for an organisation with a PAYE scheme size of between 250 to 349 to prepare for its staging date and consider the impact on its business.

Over the next six months the following organisations will reach their staging dates:

PAYE scheme size                               Staging date

Assess your workforce

Workers who will need to be automatically enrolled in a pension scheme are called ‘eligible jobholders’. An eligible jobholder is aged between 22 and state pension age, working or ordinarily working in the UK and earning above £7,475 (to be reviewed annually by the government). Eligible jobholders should be automatically enrolled into a qualifying pension scheme and employer contributions made into that scheme. Workers who are not eligible jobholders will still have a right to opt into a pension scheme or right to join one.

Review your existing pension scheme

If you have an existing pension scheme you may consider enrolling all eligible jobholders into this scheme. To do this, your existing scheme will need to qualify as an automatic enrolment scheme. If your existing scheme does not qualify, you may be able to change the scheme rules or amend the terms of the policy so that you will be able to use it for automatic enrolment.

If you do not have an existing pension scheme or you cannot use your existing pension scheme(s) for automatic enrolment, you will need to choose another pension scheme.

To be a qualifying scheme, minimum contributions must be made or it must provide a minimum rate at which benefits will build up. A scheme suitable for automatic enrolment must also not: 

• impose barriers to join the scheme, such as probationary periods or age limits for members
• require staff to make an active choice to join or take other action prior to joining
• require the provision of extra information in order to stay in the scheme. 

Communicate the changes to all your workers

Employers must inform all their workers in writing about the changes detailing how they are affected by the changes. This communication must be provided in writing (which can include being sent by email) and must be specific to the individual. The duty is on the employer to provide the right information to the right individual at the right time.

Automatically enrol your eligible jobholders

There is a process that employers will need to follow in order to make an eligible jobholder a member of an automatic enrolment pension scheme. Certain information about your eligible jobholders will also need to be supplied to pension scheme managers, for example at specific points in the process.

Register with The Pensions Regulator and keep records

Employers are required to inform The Pensions Regulator how they have fulfilled their new automatic enrolment duties by registering this information online with The Pensions Regulator shortly after the staging date. Specific records will need to be maintained about enrolled workers, their status within the scheme, the payment of contributions and the qualifying scheme itself. Records will also need to be kept for those enrolled workers who opt out of your pension scheme.

The employer will need to monitor the age and earnings of all workers who are not eligible jobholders and not already in a qualifying scheme on an ongoing basis. If any worker’s circumstances change in a pay period so that they become an eligible jobholder, they will need to be automatically enrolled.

Contribute to your workers’ pensions

After your staging date, you must contribute to your chosen pension scheme on behalf of your workers. The minimum contribution rates that an employer must pay into their workers’ pension scheme will be introduced gradually. This is known as ‘phasing’. The minimum employer contribution will change from 1% to 3% over time. The minimum employer contribution will start at 1% then in October 2017 this will increase to 2% and from October 2018 it will increase to 3%. This is the minimum employer contribution and larger contributions can be made.

Further information

The following content prepared by ACCA may help you:

• Know your staging date
• Employers’ mandatory pension registration
• Preparing for automatic enrolment
• Workplace pensions vodcast.

While both summary and detailed guidance (including the main steps) is available from The Pensions Regulator.

Detailed guidance from The Pensions Regulator can be found here and here.